Correction in Gold and Silver Stocks Nearing End

We expected a correction after the gold and silver shares ran into predictable
resistance that coincided with October seasonal resistance. That was predictable.
Now we are 19 days into the correction and we see some stealth signs of strength
and signs of the correction nearing its end.

There are numerous positive elements to the current technical makeup of GDX.
First, is the price action. The market has very strong support at $48 to $49.
It first bottomed at $50.90 and then at $50.81 on Monday. Since then, GDX pushed
higher to $53. Secondly, note that the RSI bottomed at 50. In a bull trend
the RSI will bottom at 40 and not the typical 30. However, in a very strong
bull trend the RSI can bottom at 50. Third, the GDX vs. GLD ratio has shown
strength in the past few days and has shown little to no weakness during this
correction. Finally, note the accumulation line at the bottom of the chart.
It barely dipped after surging for several months.

Next, let's take a look at GDXJ. Do you notice the similarities to GDX?

GDXJ has strong support at $23 but managed to bottom twice at $23. Meanwhile,
the RSI indicator has remained above 50 and the GDXJ vs. GLD ratio has remained
steady during the correction. Once we have confirmation that the correction
is complete, we'd target $30 in the near term. A close below $23 would indicate
that the correction has further to go.

Moving to the silver shares, we see the same things we see in the previous
charts. The market has maintained support at $23, RSI is holding above 50,
there has been little distribution during the consolidation, and the silver
stocks are trending higher against SLV.

Precious metals shares enjoyed a strong summer rebound after forming a double
bottom. Their overbought condition has been worked off in a consolidation more
so than a correction. As we noted, the shares are quietly showing signs of
strength that hint at another leg higher in the not too distant future. The
shares could remain in consolidation for a few more weeks but it would not
impact the bullish prognosis for the medium term. As long as recent lows hold,
this bullish analysis applies going forward.

Good Luck!

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